Section 83(i) Elections: Deferring RSU Tax at IPO

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Section 83(i) allows qualified employees to defer the income tax owed when RSUs vest and settle at the time of an IPO
Without this election, RSU settlement triggers ordinary income tax on the full fair market value of the shares received
The deferral can last up to five years, giving employees time to sell shares and generate the cash needed to pay the tax
Created by the 2017 Tax Cuts and Jobs Act for rank-and-file employees at newly public companies

The company must grant equity to at least 80% of its U.S. employees under a written plan with consistent terms
Officers, directors, and the top 1% of earners are excluded from making a Section 83(i) election
The company must have been privately held before the triggering event — it cannot already be publicly traded
The stock received must be from a corporation, and partnership interests or LLC units do not qualify

You must make the election within 30 days of the RSU settlement date — there is no extension or late filing option
The company must provide you with a written notice explaining your right to make the election at the time of settlement
Deferred income becomes taxable at the earliest of five years, a stock sale, or separation from the company
Social Security and Medicare taxes are still due at settlement — only income tax is deferred under 83(i)

Normally, RSUs are taxed as ordinary income at the stock price on the vesting or settlement date
With 83(i), you receive the shares but postpone the income tax hit, potentially for up to five years
Regular taxation provides certainty — you know exactly what you owe and your cost basis is set at vesting
The 83(i) election adds uncertainty: the tax is based on settlement value but paid later

If the stock declines after settlement, you still owe tax based on the higher settlement-date value
You cannot claim a capital loss to offset the income tax — the tax is fixed at the settlement date fair market value
Leaving the company triggers immediate recognition of the deferred income and a potential large tax bill
Very few companies meet the 80% coverage requirement, making the election rarely available

You can only make the election once per company — it is a one-time decision at the time of the triggering event
The election applies to the entire RSU settlement — you cannot defer tax on some shares and pay immediately on others
State tax treatment varies and some states may not conform to the federal 83(i) deferral rules
Interest or penalties may apply if estimated tax payments are not handled correctly during the deferral period

Consider it if you are a non-executive employee at a company going public that meets the 80% equity coverage requirement
It may help if you expect to be in a lower tax bracket in a future year when the deferred income is recognized
Avoid the election if you expect the stock price to drop, since your tax is locked at settlement value
Consult a tax advisor before the 30-day deadline — once it passes, you cannot go back and make the election

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